Article
Reference
Comparative Political Economy of Wage Distribution: The Role of
Partisanship and Labour Market Institutions
PONTUSSON, Harry Jonas, RUEDA, David, WAY, Christopher R.
Abstract
Through a pooled cross-section time-series analysis of the determinants of wage inequality in
sixteen OECD countries from 1973 to 1995, we explore how political-institutional variables
affect the upper and lower halves of the wage distribution. Our regression results indicate that
unionization, centralization of wage bargaining and public-sector employment primarily affect
the distribution of wages by boosting the relative position of unskilled workers, while the
egalitarian effects of Left government operate at the upper end of the wage hierarchy, holding
back the wage growth of well-paid workers. Further analysis shows that the differential effects
of government partisanship are contingent on wage-bargaining centralization: in decentralized
bargaining systems, Left government is associated with compression of both halves of the
wage distribution.
PONTUSSON, Harry Jonas, RUEDA, David, WAY, Christopher R. Comparative Political
Economy of Wage Distribution: The Role of Partisanship and Labour Market Institutions. British
journal of political science, 2002, vol. 32, no. 02, p. 281-308
DOI : 10.1017/S000712340200011X
Available at:
http://archive-ouverte.unige.ch/unige:41004
Disclaimer: layout of this document may differ from the published version.
1 / 1
Comparative Political Economy of Wage Distribution: The Role of Partisanship and Labour
Market Institutions
Author(s): Jonas Pontusson, David Rueda, Christopher R. Way
Source:
British Journal of Political Science,
Vol. 32, No. 2 (Apr., 2002), pp. 281-308
Published by: Cambridge University Press
Stable URL: http://www.jstor.org/stable/4092219
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B.J.PoI.S.
32,
281-308
Copyright
@ 2002
Cambridge University
Press
Printed
in
the United
Kingdom
Comparative
Political
Economy
of
Wage
Distribution: The Role
of
Partisanship
and
Labour Market
Institutions
JONAS
PONTUSSON,
DAVID
RUEDA
AND
CHRISTOPHER
R.
WAY*
Through
a
pooled
cross-section
time-series
analysis
of the
determinants of
wage inequality
in
sixteen OECD countries from 1973
to
1995,
we
explore
how
political-institutional
variables
affect
the
upper
and lower halves
of the
wage
distribution.
Our
regression
results indicate that
unionization,
centralization of
wage bargaining
and
public-sector
employment primarily
affect
the
distribution
of
wages by
boosting
the relative
position
of unskilled
workers,
while the
egalitarian
effects of Left
government operate
at the
upper
end of
the
wage
hierarchy, holding
back the
wage
growth
of
well-paid
workers. Further
analysis
shows that the differential effects
of
government partisanship
are
contingent
on
wage-bargaining
centralization:
in
decentralized
bargaining systems,
Left
government
is associated with
compression
of both halves of the
wage
distribution.
It is well known that
wage
inequality
has increased
dramatically
in
the United
States
over
the
last
three
decades. From
1973
to
1998,
the
hourly
earnings
of
a
full-time
worker
in
the
ninetieth
percentile
of
the American
earnings
distribution
(someone
whose
earnings
exceeded those of 90
per
cent
of all
workers)
relative
to
a
worker
in the tenth
percentile
grew
by
25
per
cent,
and
the
corresponding
figure
for men
only
was
nearly
40
per
cent. As
we
document
in this
article,
wage inequality
has increased
in most
Organization
for Economic
Co-operation
and
Development
(OECD)
countries,
but
the
extent
of this
phenomenon
varies a
great
deal,
and cross-national differences in levels of
wage
inequality
remain as
great
as
they
were in the
1970s.
In
the United
States,
the
worker in the ninetieth
percentile
earned 4.63 times
as
much as the worker
in
the tenth
percentile
in
1996.
At
the other
end
of
the
cross-national
spectrum,
the
90-10
ratio for
Sweden was
only
2.27.
While
political
commentators
in
Europe
and
the United
States
alike
frequently
invoke
inegalitarian
labour market trends to
explain
various
manifestations
of
working-class political
disaffection
(not
only
support
for
right-wing
populist
parties,
but
also
falling
turnout
among working-class
*
Department
of
Government,
Cornell
University.
For
helpful
comments
and
suggestions,
we
thank
James
Alt,
Rob
Franzese,
Richard
Freeman,
Larry
Kahn,
Michael Wallerstein and three
anonymous
referees.
282
PONTUSSON,
RUEDA
AND WAY
voters),
recent
work
by
labour
economists demonstrates
that
supply
and demand
factors alone cannot account
for
cross-national variation
in
wage
inequality.1
Wage
inequality appears
to have
political
determinants
as well as
political
consequences.
On both
counts,
it deserves
to be
a
central
concern
of
comparative
political economy
as
conceived and
practised
by political
scientists.
Within
political
science,
however,
the
paucity
of research on
wage
inequality
stands
in
sharp
contrast to the
large
number of
quantitative
studies that take various
measures
of macroeconomic
performance
or
government
spending
as their
dependent
variable.
Drawing
on
a new dataset
published by
the
OECD,2
which
enables us
to
engage
in
a
pooled
cross-section
time-series
analysis
of the
determinants of
wage inequality
in
sixteen
OECD
countries for
the
period
1973-95,
we seek to
make
up
for some
of
this
neglect.3
From
the
perspective
of
comparative political
economy,
the manner
in
which
labour economists deal
with cross-national
differences
in
government
policy
and the
organization
of
wage bargaining
leaves
something
to
be desired. Most
commonly,
rather
vaguely specified
institutional factors are invoked
to
explain
whatever
variance remains
when
the effects of
supply
and
demand
have been
taken into account. And
when
economists
incorporate
cross-national differences
into their
models,
they typically
reduce these
differences to
a
single,
one-dimensional
variable,
such
as
wage-bargaining
centralization.
Our
analysis
demonstrates that it is
possible
to
distinguish
discrete effects
of
several
political-institutional
variables.
Controlling
for
certain
supply
and
demand conditions as
well as
country-specific
fixed
effects,
we
find that
bargaining
centralization,
public
sector
employment,
union
density
and left
government
are all
negatively
associated with overall
wage
inequality,
measured
by
90-10 ratios. In
other
words,
higher
values
on these
independent
variables are
associated
with lower
90-10
ratios. While
bargaining
centraliza-
tion and the
size
of the
public
sector can be characterized as 'institutional' or
'structural'
features
of the
political
economy,
union
density
and
government
partisanship
pertain
to
the distribution of
power
between
labour and
employers,
and also
to
the distribution
of
power among
different
categories
of
wage-earners.
Institutions matter for the distribution
of
wages,
and so
do
politics.
To
get
a better
handle
on the causal mechanisms at
work,
we
engage
in
separate regression
analyses
of the
determinants of the
ratio of
earning
in
the
For
example,
Richard Freeman
and
Lawrence
Katz, eds,
Differences
and
Changes
in
Wage
Structures
(Chicago:
The
University
of
Chicago
Press,
1995),
pp.
1-24;
Francine Blau and Lawrence
Kahn,
'International Differences
in
Male
Wage
Inequality',
Journal
of
Political
Economy,
104
(1996),
791-836;
and Peter
Gottschalk
and
Timothy Smeeding,
'Cross-national
Comparisons
of
Earnings
and Income
Inequality',
Journal
of
Economic
Literature,
35
(1997),
633-87.
2
OECD,
'Earnings
Inequality',
Employment
Outlook
(July
1993),
157-84; OECD,
'Earnings
Inequality,
Low-paid
Employment
and
Earnings Mobility', Employment
Outlook
(July
1996),
59-108.
3
For similar
efforts
by
other
political
scientists,
see Torben Iversen
and Anne
Wren,
'Equality,
Employment
and
Budgetary
Restraint',
World
Politics,
46
(1998),
527-55;
and
Michael
Wallerstein,
'Wage-Setting
Institutions and
Pay Inequality
in
Advanced Industrial
Societies',
American Journal
of
Political
Science,
43
(1999),
649-80.
Comparative
Political
Economy of Wage
Distribution
283
ninetieth
percentile
to
median
earnings
(the
'90-50
ratio')
and
the
ratio
of
median
earnings
to
earnings
in the
tenth
percentile
(the
'50-10
ratio').
Basically,
we
ask
if
these
political-institutional
variables
promote
a
more
egalitarian
wage
structure
by
holding
back
wage growth
for
highly-paid
wage-earners
at
the
upper
end of the
distribution,
or
by
raising
the
relative
wages
of
people
at the
bottom
of the
wage
hierarchy.
Our
results indicate that
bargaining
centralization
and
public
sector
employment
have discernible
egalitarian
effects
in both
halves
of
the
wage
distribution,
although
both
primarily
operate
in
the bottom
half
of
the
wage
hierarchy.
In
contrast,
the
egalitarian
effects of union
density
appear
to be
entirely
confined
to the
lower
half of
the
wage
distribution,
and the
opposite
holds for
left
government,
which
operates
almost
entirely
in the
upper
half
of
the
wage hierarchy.
In the
light
of
conventional
wisdom in the
comparative
political economy
literature,
the absence of
egalitarian
effects
of
left
government
at the lower end
of
the
wage
distribution
is
puzzling.
Much
of this
literature
leads us to
expect
that
labour-affiliated
left
parties
strive
to raise the
floor for
competition among
unskilled,
low-paid
workers
by
providing
generous
unemployment
compen-
sation and
by
boosting
mandated minimum
wages.
As we document
below,
the
cross-national association between left
government
and levels
of
unemploy-
ment
compensation
is
less
strong
than conventional wisdom
implies,
and the
association
between
generosity
of
unemployment
compensation
and com-
pression
of the lower
half
of the
wage
distribution is also
quite
weak. More
importantly,
the
final
iteration of our
regression
analysis
tests
the
hypothesis
that
the
wage-distributive
effects
of
government
partisanship
are
contingent
on
the
degree
of
wage bargaining
centralization.
In
comprehensive
and
centralized
wage bargaining systems
of the Northern
European
variety,
we should
not
expect
minimum
wage legislation
to
have
much
impact
on the distribution of
wages.
The results
of an
interaction model
support
this
hypothesis:
under
decentralized
wage
bargaining,
left
government
turns out to have
egalitarian
effects at
the
lower
end as
well as
the
upper
end
of
the
wage
distribution,
but
the
egalitarian
effects of left
government
at the lower end diminish as
bargaining
centralization increases.4
Our
presentation
is
organized
as follows.
We
begin
with
a
quick
look at
the
cross-national
patterns
of
wage inequality
that our
analysis
seeks to
explain.
We
then review the
existing
literature,
present
our
hypotheses
and
independent
variables,
briefly
explicate
the
methodology
of
pooled
cross-section
time-series
analysis,
and
discuss the
results
of linear
regressions
with
90-10,
90-50
and
50-10
wage
ratios
as
the
dependent
variable.
Along
the lines
indicated
above,
we end
by
further
exploring
the
wage-distributive
effects
of
government
4
The interaction
argument
builds on David Rueda and Jonas
Pontusson,
'Wage
Inequality
and
Varieties of
Capitalism',
World
Politics,
52
(2000),
350-83,
which
argues
that
the
determinants of
wage inequality
differ across
political
economy types.
Exploring
how the determinants
of
wage
inequality
differ across
the
wage
hierarchy,
this article
was
conceived as
a
companion
to the
World
Politics
piece.
In
future
work,
we
plan
to
integrate
the
two
approaches.
